Cover image for A free nation deep in debt : the financial roots of democracy
A free nation deep in debt : the financial roots of democracy
MacDonald, James.
Personal Author:
First edition.
Publication Information:
New York : Farrar, Straus and Giroux, [2003]

Physical Description:
ix, 564 pages : illustrations ; 24 cm
Format :


Call Number
Material Type
Home Location
Item Holds
HJ8011 .M34 2003 Adult Non-Fiction Central Closed Stacks

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Nowadays, the idea that the way a country borrows its money is connected to what kind of government it has comes as a surprise to most people. But in the eighteenth century it was commonly accepted that public debt and political liberty were intimately related. In A Free Nation Deep in Debt , James Macdonald explores the connection between public debt and democracy in the broadest possible terms. He starts with some fundamental questions: Why do governments borrow? How do we explain the existence of democratic institutions in the ancient world? Why did bond markets come into existence, and why did this occur in Europe and not elsewhere?Macdonald finds the answers to these questions in a sweeping history that begins in biblical times, focuses on the key period of the eighteenth century, and continues down to the present. He ranges the world, from Mesopotamia to China to France to the United States, and finds evidence for the marriage of democracy and public credit from its earliest glimmerings to its swan song in the bond drives of World War II. Today the two are, it seems, divorced - but understanding their hundreds of years of cohabitation is crucial to appreciating the democracy that we now take for granted.

Author Notes

James Macdonald was for many years an investment banker. This is his first book. He lives in Oxford, England.

Reviews 3

Booklist Review

MacDonald, a former investment banker, examines the historical linkage between political freedom and public debt, showing why representative governments have been able to borrow more cheaply from citizen lenders than autocratic heads of state who do not consider their citizens to be equals. Beginning at the end of the Bronze Age, this wide-ranging, comprehensive treatise traces the story of public finance and political freedom through the Napoleonic Wars to the twentieth century. We learn that the U.S. role in World War I was funded with public debt and, it is interesting to note, that World War II was the last major engagement in which savings bonds were a vital part of national security and the war effort. The mature bond markets of today have a global reach, and governments no longer depend upon citizen lenders. Even when considering the hard facts of money and credit markets--and their political implications--the author emphasizes the relationship between the state and its people, in this well-considered work. --Mary Whaley

Publisher's Weekly Review

Public borrowing from citizens in times of war has gone hand in hand with modern democracy, Macdonald argues in this dense, sweeping economic history. A former investment banker now living in London, Macdonald traces the history of public financing of "national emergencies" (read: wars), from the biblical era through the present day. Until modern times, he shows, nations relied on stored treasure and surpluses to finance wars, often with detrimental results. Indeed, Macdonald argues that an inability to raise taxes for wars was one of the causes of Rome's downfall. Placing the importance of credit back at the center of historical causality is one of the book's strengths. The system of public credit swept onto the world stage in 18th-century Britain, France and the United States, and was intricately linked, notes the author, with revolutions in these latter two countries. During the 20th century, the system-and the notion of a "citizen-creditor"-reached its strongest point during WWI and likely had its swan song during WWII, because of postwar inflation, the succeeding decline in trust in government in the West and the increasingly global understanding of citizenship. There is much to learn here, but despite Macdonald's best attempts at accessibility, readers without a background in economics will struggle through. (Jan.) (c) Copyright PWxyz, LLC. All rights reserved

Library Journal Review

The secret to the survival of early democracies such as Renaissance Italy's city-states and later the Netherlands and England was the willingness of their citizens to loan their governments funds in remarkable amounts during times of crisis. This, according to Macdonald, a former investment banker, is a fundamental difference between democracies and autocracies. In this history of public finance from the ancient Greek city-states through World War II, Macdonald traces the concept of government borrowing to the reluctance of free citizens to allow themselves to be taxed; loaning money was more palatable even if repayment was delayed, discounted, or made in inflated currency. Macdonald argues that an additional benefit of citizen loans was that large segments of each nation's populace became stakeholders in the preservation of their states. He concludes that unfortunately the role of the citizen lender has diminished since the 1940s. Though the subject matter appears narrow, the book is exceedingly well written and should be a necessary purchase for any library with more than cursory holdings in public finance. Highly recommended.-Lawrence R. Maxted, Gannon Univ., Erie, PA (c) Copyright 2010. Library Journals LLC, a wholly owned subsidiary of Media Source, Inc. No redistribution permitted.